Beverage brand development guru James Tonkin has warned wannabe entrepreneurs that going up against established brands such as Red Bull and Coca-Cola without some kind of ‘silo vertical’ protection is fruitless.

Tonkin, who is president of Healthy Brand Builders, spoke yesterday at Sports Nutrition 2014 – a free to access event organized by NutraIngredients.com and BeverageDaily.com, you can relive the action here!​

He was asked by NutraIngredients-USA.com editor Hank Schultz about strategies for new brands in the light of Red Bull, Monster and Rockstar’s US market dominance in energy, and the Gatorade/Powerade’s grasp on hydration.

“Your listeners may laugh at this but I get about 50 business plans every two weeks, so there’s no shortage of folks in the market, entrepreneurs who believe their widget is gonna change the world,”​ Tonkin said.

“I talk a lot of people out of coming into the business for so many different reasons, but the main reason is the competitive pressures against the beverage space today are enormous.​

Competitive pressures and the cost of business​

Tonkin warned that the cost of doing business was enormous. “So unless you have something I as a beverage expert am going to read your business plan and see you really have a space, some kind of silo vertical with protection – it could have IP, patent protection – to go up against the brands you mentioned before is a fruitless process. ​

“Look at Red Bull, how large they are, how global they they, the media company they’ve become, and now Monster moving closer to The Coca-Cola Company. ​

“Do you think those guys will just roll over and give up space for a new energy beverage with a different taste profile or something else in it, that’s probably underfunded and is going to have a heck of a time on the distribution side? It’s not gonna happen.” ​

Tonkin said people needed to be much more innovative, using the likes of 5-Hour Energy as an example – since Manoj Bhargava came up with that brand in a quite simplistic way.

“He said, ‘Well, if 8oz-24oz energy drinks cans are great, why can’t I use a 2oz delivery system that can go into a woman’s purse or a man’s front pocket, that can fit in the seat receiver in the car where your gearshift is… and get the same benefit with minimal waste from 2oz?’​

“‘And I can make it taste good enough?’ ​5-Hour’s success spurred the shot industy, Tonkin said, noting that shots are still “on fire”​ as people love the portable delivery system, while the smaller footprint makes it easier for brands to distribute while the recycling platform is smaller.

‘What’s success? Success to me is having an exit…’​

“Everyone who’s thinking of getting into the beverage industry needs to think: ‘How big is the category, how unique is my offering, am I capitalized correctly? Do I have the right management in place and what’s my distribution and sales plan?” Tonkin said.​

“Without some specific energy behind that it’s going to be really difficult to be successful. What’s success? Success to me is having an exit. Someone at some point is going to say: ‘You’ve built a company that’s worth me buying it’. ​

“Whether that’s Coca-Cola, Pepsi or General Mills, Kellogg’s or P&G, it doesn’t really matter. It could be private equity – but getting to that point is really, really tough.”​